Page 45 - Banking Finance June 2020

ARTICLE

In favor of the tide.. banks will only be able to make up as much as INR
20,000 crores approximately with the reduction in CRR
X The time is most opportune for the banks to opt for and MSF. There would still be a negative gap of roughly
negative interest rates because there could be an
INR 20,000 crores. This burden will be borne by the bank
economic depression and deflation in the near
treasuries to raise the deficit by offering competitive
foreseeable future. Now there could be an argument and attractive short term deposit rates to peer banks.
thatnegative interest rates and low inflation go hand
X In the coming times consumers shall become indifferent
in hand so how does India fit in?
to the interest in the market and would prefer to
X Well the assumption is banks will have sizeable chunk consume less and save more. This will have a cascading
of NPAs on account of lockdowns, in addition to their effect as the demand for goods and services will dwindle
already mounting NPAs. Further on expiry of the MSME and the prices will decrease gradually.
and real estate restructuring clause, the problem will
X Banks on the other hand will still have to battle for their
then be insurmountable! All the coffers and reserves will
survival and would bundle their loan products on the
be used to wipe out the losses. With uncertainty writ basis of fees and not interest. This form of packaging
large on the face of the country, consumers would be has a psychological impact on the consumers.
wary of fresh loans and banks will face severe liquidity
X Amidst all of it, a further weakening rupee shall attract
issues. The swaps with RBI and deferment of loan EMIs investors and encourage our exporters which is pretty
is only a turnaround. Further reducing the Repo and
much the surmise of our prevalent Foreign Trade Policy
CRR margins will only lower the cost of borrowing for
2015-20.
banks but the objective wouldn’t be served.
X For the larger Indian Banks specially the public sector Below is a pictorial depiction of some of the economies with
banks, the deferment of EMIs and interest by 3 months negative interests. (Reference:https://www.weforum.org/
will affect their liquidity as the inflows sacrificed would agenda/2016/11/negative-interestrates-absolutely-
be between the range of INR 40,000-50,000 crores and everything-you-need-to-know/)

BANKING FINANCE | JUNE | 2020 | 45